Oregon in time crunch to use recovery bonds

Vestas Americas, a producer of wind power systems will keep its headquarters in Portland in part because of a $30 million recovery bond. The company is planning a $60 million retrofit of this building, the former Meier & Frank warehouse in the Pearl District. (Photo by Dan Carter/DJC)

Cities and counties across Oregon are rushing to use federal bonds before a Dec. 31 deadline.

A significant amount of the bond money, which was intended to stimulate the building industry, has not been used. Local government officials admit that the federal process has been daunting, and that finding the right projects has been tiresome. But they’re working to allocate the money before it disappears.

The bonds, known as recovery bonds, were issued through the American Recovery and Reinvestment Act of 2009 to all 50 states. The states distributed money to each county and each city with a population greater than 100,000.

Oregon was authorized to issue $258.7 million in recovery bonds – $155.2 million for facilities and $103.5 million for economic development. Approximately $185 million of the bonds either has been issued already or will be, said Marc Zolton, a spokesman for the Oregon Business and Development Department, which is in charge of issuing the bonds.

The facility bonds are issued through the city or county for private projects. But unlike a typical private bond, the purchaser doesn’t have to pay taxes on the interest earned. Private projects thus receive tax benefits of a public bond.

“These bonds are a great stimulus because they give bond buyers a reason to lend to private projects in this economy,” said Patrick Quinton, urban development, business and industry division manager for the Portland Development Commission, which is in charge of allocating Portland’s bonds. “But even though they can be a big help, they’ve been slow to get off the ground.”

The first speed bump was the time-consuming process to secure the bonds and complete the accompanying paperwork and procedures, Zolton said. Then the department had to market the program to the various cities and counties, he said.

But since the facility bonds were handed over to the cities and counties, the problem has been finding the right projects under the right timelines, Quinton said. The project has to be ready to go and have any additional funding in place before the bond is put on the market, he said.

“In addition to the timeline, the project has to be creditworthy with a credit score of at least an AA- because the city and the state’s name will be attached to it,” Quinton added. “And in this economy, even some of the best positioned developers don’t have that.”

The city of Portland was given $20 million in facility bonds but hasn’t issued any of it. There are four or five projects the PDC has targeted, but nothing has come to fruition yet, Quinton said.

However, the city recently made a move.

Not wanting to use its allotted $20 million, the city of Portland earlier this month asked the state to issue it an additional $30 million in facility bonds to entice Vestas Americas to keep its headquarters in Portland. The request is expected to be approved at the PDC board meeting on Friday. Vestas, the world’s leading producer of solar power systems, would get the $30 million tax-exempt bond for a $60 million renovation of the former Meier & Frank warehouse in the Pearl District.

“We’d heard that some parts of the state weren’t planning on using the money, so we asked the state and (it was) willing to help us keep Vestas around,” Quinton said.

In Eugene, city officials are working to authorize an $8 million recovery bond for Bennett Management Co. to construct a new downtown office building. But the city’s remaining $3 million in bond authority likely won’t be used, said Denny Braud, development analyst for the city of Eugene.

“These are not easy bonds to issue because of all the people you need on board and the timeline that must be stuck to,” Braud said. “We just stumbled into this one project, and will be very fortunate if it works out.”

The economic development recovery bonds, on the other hand, can be used only by public entities, which get a 45 percent interest subsidy on the bond. Also, these bonds may be sold on the private bond market, where they could generate more interest.

Multnomah County has issued has plans to issue its $5 million economic development recovery bond to help pay for its $20 million East County Courthouse project. Because of the subsidy, the county will save $300,000 to $400,000 in interest over the life of the bond, said Mark Campbell, acting director of finance and risk management with Multnomah County.

“We were thinking about a lot of projects, but this one rose to the top because we knew we wanted to get it going by the end of the year,” Campbell said. “It fit the timeline.”

Portland used an $11 million economic recovery bond earlier this year to finance energy and water conservation projects at 100 Portland public schools.

Washington County has a list of projects for its bonds, as well. It has issued $19.3 million in facility bonds and $12.8 million in economic development bonds. Hillsboro and Banks have been the main beneficiaries so far. Beaverton felt the effects of the short timeline; it wasn’t able to get a list of potential projects together for the bonds by the time Washington County commissioners needed it.

And even Umatilla County recently authorized a $9 million grant for improvements to a Snack Alliance manufacturing facility in Hermiston. The company also is in an enterprise zone, so it gets property tax abatement on top of the bond financing for the improvements.

“They’ve been slow to get issued,” Zolst said. “But we’re going to do everything in our power to get the money out the door before it’s gone.”

Just to clarify a point in the article about the City’s threshold for issuing public debt – the City’s minimum rating requirement for publicly offered conduit revenue bonds is A3/A- or better. Lower rated bonds must be sold via a private offering to accredited investors.

Multnomah County and the entire city of Portland has been designated a recovery zone. The criteria to create a recovery zone is pretty loose. The city of Portland made it because it fell above the unemployment trigger and above the foreclosures trigger set forth by the federal goverment. As far as I’m aware a city or town only needed to meet two of the criteria to create the zone, and Portland as a whole made it.